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Analytics Uses in Retail Banking PDF
Analytics Uses in Retail Banking PDF
Analytics Uses in Retail Banking PDF
Business
in Financial
Analytics
Services
Content
Preface
From the Editors Desk
Analytics for a New Decade
01. Post-Crisis Analytics: Six Imperatives
05
13
21
29
37
47
55
61
69
77
85
Customer Understanding
Fight Fraud More Effectively
12. Developing a Smarter Solution for Card Fraud Protection
93
103
109
117
125
135
Analytics in
Financial
Services
16
Analytics in Retail Banking:
Why and How?
Anjani Kumar
Senior Project Manager,
Infosys Technologies
Limited
Raghavendra Shenoy
Associate Consultant,
Infosys Technologies
Limited
Introduction
In retail banking, where customer value is at
the core of operations, creating and nurturing
long-term relationships with the customer is
the key to maximizing wallet share. Advances
in technology and the emergence of multiple
service channels has resulted in customers
using personal computers and smart phones to
access banking services. Hyper-competition,
loss of personal touch and the use of the
internet as an effective channel, has resulted
in reduced stickiness and switching costs of
customers, denting bank profitability.
Figure 1
Reten
tion
Acqu
isiti
on
Bank
s C o
st
126
A bankers challenges
Figure 2
Environment
Regulatory
Customers
Bankers
Challenges
Competition
Technology
Strategic
Tactical
Competition: In a hyper-competitive
environment, the bank's traditional power
of market share, pulling in deposits,
cross-selling, and pricing has waned.
Non-banks are grabbing market share
(for example, in credit card and deposit
substitutes). Money portals (for example,
PayPal) which have real-time transaction
analytical capabilities, pose a tremendous
challenge to banks. Competition has reduced
switching costs significantly.
Regulatory: Customer privacy regulations
(for example, spam rules, opt-out programs)
have made advertising difficult. Banks
in many countries are also seeing new
regulatory directives (for example, in
lending). In the absence of a robust
analytics solution, banks are unable to
optimally judge their risks and
exposurewhile meeting the increased
pressure to lend. Business analytics tools
can help in creating refined customer risk
profiles.
127
AnalyticsKey to
Differentiation
Banks spend a lot of energy in studying
customer datawith a goal of understanding
drivers of customer attrition, repositioning
offerings and using targeted marketing to
differentiate their services and help improve
customer retention. For a bank to meet its
objectives, a robust analytics solution
incorporating defined metrics that provide
a unified view of customers, across lines of
businesses and channelsis crucial. Good
analytics provides banks with many benefits
Benefits of Analytics
Reduced
Customer
Attrition
Figure 3
Improved
Customer
Acquisition
Improved
Profitability
Enhanced
Customer
Value
Maximize
Interest
Revenue
Benefits of
Analytics
Improved
Decision
Making
Support
Maximize
Fee Revenue
Enhanced
Credit Risk
Management
Reduced
Non-Credit
Losses
128
Increased
Cross-Sell
Revenues
Campaign
Management
Costing
Analysis
Customer
Profitability &
Lifetime Value
Analysis
Marketing
Service
Request
Analysis
Attrition and
Loyalty
Management
Figure 4
Transaction
Behavior
Analysis
Corporate
Function
Predictive
Modeling
Cross-sell
and Product
Holding
Analysis
129
130
Analytics Implementation
Approach
To enable banks to fully benefit from
analytics, a structured approach for
implementation is crucial. Many banks
follow a three-phased approach. In the
first phase, banks master customer data.
In the second phase, banks attempt to
gain insights through automated analysis
(for example, profitability and cost) of
existing data. In the final phase, banks
Figure 5
Insight
Hindsight
Foresight
Data
Knowledge
Wisdom
Data
Knowledge
Wisdom
?
Product
?
Customer
?
Customer
Profitability
?
Customer
Profitability
Information
File
Value-oriented
strategies /
tactics
Figure 6
Business
Intelligence
Campaign
Management
Data
Sources
Data
Consolidation
Analytics
Intelligence
Analytics Infrastructure
Cross-Sell
and Product
Holding
Analysis
Customer
Data
Account
Data
Customer
Profitability
and Lifetime
Value
Attrition
and Loyalty
Analysis
Transaction
Behavior
Analysis
Data
Warehouse
Transaction
Data
Service
Request
Analysis
Analytics
Datastore
External
Data
Service
Request Data
131
Effective analytics
Figure 7
Real
Time
Strategy
Basics
Experts
Cross
Functional
Effort
Social
Media
Effective Analytics
132
Conclusion
Understanding and utilizing the power of
analytics has become imperative for retail
banks. Potential applications of an effective
analytics program are nearly limitless. When
implementing, banks must follow a structured
approach and ensure that specific needs are
kept in mind, proper stakeholders are involved,
and a long-term strategy is developed. Those
that do, will achieve a significant competitive
advantageselling the right products to the
right customers at the right time.
133